The Case for Tuition Insurance

Everyone knows that college is expensive. Yet very few people know that the cost of college can be insured.

The high cost of college has been building for decades. Withering subsidies at the state level are causing public universities to raise the sticker prices they charge students. Private colleges are also charging more, as their endowment funds still reel from the 2008 financial meltdown and continuing market uncertainty.

Despite the high cost, students and their parents understand in their gut how important a college education is to future success. Somehow they find a way, year after year, to pull together the financial resources to make the college investment. These days, it’s true more than ever. According to the U.S. Department of Education, a record 70.1% of 2009 high school graduates entered a post-secondary institution last fall.

But, as with any investment, something can go amiss. In the case of the college investment, an ongoing risk is the unexpected event of a medical withdrawal.

Exact numbers on medical withdrawals from college are difficult to obtain. But clearly they do occur. A 2009 Student Monitor study found that 27% of students either themselves experienced or had a close friend who experienced a mid-semester withdrawal from college due to student medical condition or a death in their immediate family.

What happens when an unexpected force meets an immovable object? In physics, it’s a collision and, in the case of college tuition, it’s the creation of financial risks and vulnerabilities for students and their parents.

The immovable objects in this case are the understandably strict refund policies put in place by colleges and universities. The high-stakes drama of college admissions at many schools leads their “seats” for students to be extremely valuable. So when one of those seats suddenly becomes empty, due to an unexpected medical withdrawal, the vast majority of colleges are reluctant to give the money already spent, or committed to, back to the student and his or her tuition-paying parent. And when federal financial aid is involved, loans or grants, the refund policies of schools are often guided by strict government guidelines.

With the cost of attendance for the average in-state student at a public university more than $15,000, and the average annual cost for a private school student nearly $36,000, the loss of even a semester’s worth of college investment can leave a devastating mark on a family’s finances, without any result to show for it, other than instructions to retake classes the following semester.

That’s where Tuition Insurance from College Parents of America comes in. We have created the first-ever national group policy for tuition insurance, available to the tuition-payer at any accredited institution of higher education in the U.S.

Tuition insurance is analogous to travel insurance. Travel insurance didn’t exist 30 years ago, but today a Google search for those two words will yield 101 million results. The idea behind travel insurance is simple: an investment in a trip can be quite large, but there is a small chance that an unforeseen event can keep one from being able to travel. Purchasing travel insurance allows the future traveler to prevent against that risk.

The same principle applies to the new College Parents of America tuition insurance product, created by GradGuard, a service of Next Generation Insurance (NGI) Group. Only it’s not just that college “can be” expensive, it is expensive, very expensive indeed. And the risk of losing money when a medical withdrawal occurs is very real, with rare chance for a successful appeal.

To prove this point, College Parents of America recently conducted a survey of 215 colleges and universities across the country, 92 public and 122 private and one, the University of Pittsburgh, “state-related.” Of the 215 schools researched, 181 (84%) have strict refund schedules for medical withdrawal, without a refund appeal mechanism. The other 16% of schools surveyed do have an appeals process for students who are looking for a larger refund.

Looking just at those schools in the survey that do not offer an appeals process, nearly half (46%) stipulate that students not receiving financial aid who file for medical withdrawal receive no money back after 5 weeks of classes in any given term. The remaining schools offer varying levels of refunds after the 5-week mark, with some providing up to 25% of money back and others up to 50%. The survey found that only 41 schools, less than 20% of those researched, offer an automatic medical withdrawal refund of more than 50% after 5 weeks in a term.

Now with a threat of losing money that is this real, you might wonder why there has been nothing done in the marketplace, until now by College Parents of America, to address this problem. The fact is that tuition insurance has been around since 1930, but it was a product so exclusive, you could almost see the blue blood dripping all over it.

Over these past 80 years, until now, tuition insurance was offered only as part of the school-enrollment process at first just a few, then dozens, and now approximately 165 of mostly expensive and selective schools scattered throughout the country. Many of the early adopter schools for tuition insurance are planted squarely among the Ivy-covered walls in the mid-Atlantic and New England.

The differences between the targeted tuition insurance policies at those schools served by vendor private company A.W.G. Dewar, and the new national policy offered by College Parents of America, are several. Examples of two key differences are:

Tuition insurance at a Dewar school must be taken out upfront, as part of the enrollment contract process, while College Parents of America tuition insurance can be purchased at any time during the year.

Tuition insurance from Dewar is priced at set amounts to cover the full cost of attendance for a year at a particular school, though the fixed price varies from school-to-school, depending, it appears, on the underwriting history of the institution. Since College Parents of America tuition insurance is available to the tuition-payer for a student at any accredited school, the pricing is staggered and ultimately the amount paid depends on the amount of coverage desired. For instance, an annual College Parents of America standard membership, priced at $89, brings with it up to $5,000 in tuition insurance coverage, while a $299 premium membership provides up to $15,000 in coverage, as well as other several other products and services that make up the GradGuard Student Protection Plan.

The fact is that in today’s world, every college or university is expensive, not just the relatively small number of schools who work with A.W.G. Dewar. And tuition insurance from College Parents of America, provided by GradGuard, and underwritten by Markel Insurance Inc., is now available to every family in America, no matter where your adult child goes to post-secondary school.